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MUMBAI: India’s long-duration borrowing costs could head north as the biggest domestic buyer of debt, the Life Insurance Corp (LIC), is generally skipping the weekly government bond sales, putting its money instead into higher-yielding corporate paper and other investment commitments.

Over the past three or four weekly bond auctions, the insurance behemoth has been conspicuous by its unusual absence leading to the rise in long-term bond yields, multiple bond dealers told ET.

Email queries sent to LIC remained unanswered until the publication of this report.

“The participation paradigm in RBI’s weekly bond sale has changed since the last threefour auctions,” said Naveen Singh, head of government securities trading at ICICI Securities PD. “The absence of a large investor is weighing on higher duration yields, although the presence of an increasing number of smaller participants should help the primary market in long run.”

The central bank, which conducts debt auctions for North Block, sold a series of sovereign papers maturing in 2046 last Friday: It received 143 bids for Rupee3,000 crore. It accepted 100 bids to sell such bonds.

Four weeks ago, it sold 27-year maturity papers by accepting just one bid against 106 received bids.

“The long-maturity bond yields are seeing more dispersed demand lately, probably owing to large institutional investors not participating fully,” said Suyash Choudhary, head of fixed income at IDFC MF. “This has led to some tailing in auctions with so many bids coming in. However, this is a much-needed adjustment in what has so far been a very flat curve between 5 and 30 years.”

In August, the benchmark bond yield rose about 17 basis points to close at 7.87per cent last Friday. The cut-off yield below which bids are accepted has also expanded about 12 basis points in long-maturity bond auctions within four weeks. Rising yields add to market borrowing costs. The difference between cut-off price and weighted average price too has widened unusually up to 25 paisa, signaling that there was no single large bid in an auction.

“Investment commitments may have driven large institutional investors to trim their appetite of government bonds, although they may come to the primary market sooner or later once things are settled,” said Ajay Manglunia, senior executive vice president – fixed income, Edelweiss Finance.

Similarly, for a 17-year series, the RBI received 60 bids compared with just 18 bids for similar maturity bonds auctioned in the second week of July.

This year, LIC has bought debt-laden IDBI Bank, seeking to infuse about Rupee10,000-13,000 crore into the stressed government-owned lender.

LIC has also given commitment of new credit lines to government-owned top-rated companies, including Indian Railways Finance Corporation and National Highway Authority of India.